Indictment of John Mazzuto & James Margulies Related To Industrial Enterprises of America (IEAM) Massive Stock Fraud

SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
THE PEOPLE OF THE STATE OF NEW YORK
-against- Indictment No. 2503/2010
JOHN D. MAZZUTO and

JAMES W. MARGULIES,
Defendants.
THE GRAND JURY OF THE COUNTY OF NEW YORK, by this indictment, accuses
the defendants of the crime of GRAND LARCENY IN THE FIRST DEGREE, in violation of
Penal Law §155.42, committed as follows:
The defendants, in the County of New York and elsewhere, during the period from on or
about July 1, 2004 to in or about 2008, stole property from Industrial Enterprises of America,
Inc. and the value of the property exceeded one million dollars.
SECOND COUNT:
AND THE GRAND JURY AFORESAID, by this indictment, further accuses the
defendants of the crime of GRAND LARCENY IN THE FIRST DEGREE, in violation of
Penal Law §155.42, committed as follows:
about July 1, 2006 to on or about July 1, 2007, stole property from an individual known to the
Grand Jury and the value of the property exceeded one million dollars.
THIRD COUNT:
defendants of the crime of SCHEME TO DEFRAUD IN THE FIRST DEGREE, in violation
of Penal Law §190.65(1)(b), committed as follows:
about July 1, 2004 to in or about 2008, acting with others known and unknown to the Grand
Jury, all hereinafter referred to as “the schemers,” engaged in a scheme constituting a systematic
ongoing course of conduct with intent to defraud more than one person, including investors,
shareholders, regulators, securities markets and exchanges, and auditors, and to obtain property
from more than one person by false and fraudulent pretenses, representations and promises, and
so obtained property, to wit, money, with a value in excess of one thousand dollars from one or
more such persons, in that the schemers acquired a public shell company and used it as a vehicle
for larceny and fraud by illegitimately issuing millions of shares of stock and engaging in
fraudulent activity to inflate the value of the stock and deceive investors, as follows:
THE PLAYERS
• Industrial Enterprises of America, Inc. (“IEAM”). During the period of the scheme,
IEAM (formerly known as Advanced Bio/Chem, Inc.) was a public shell company
incorporated in Nevada and headquartered in New York County. IEAM acquired three
principal operating subsidiaries between 2004 and 2006, two of which manufactured and
distributed automotive after-market products (e.g., antifreeze, windshield cleaner and
oil-based lubricants), and one of which manufactured and sold aerosol gas products (e.g.,
computer cleaners). During the period of the scheme, IEAM’s stock variously was listed
on the over-the-counter market (“OTC Market” or “Pink Sheets”), the OTC Bulletin
Board (“OTCBB”) and the NASDAQ Stock Market (“NASDAQ”).
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• John D. Mazzuto. Defendant John Mazzuto spent approximately 20 years at a
prominent New York bank, where he served as Managing Director of corporate finance.
In the decade prior to the scheme, Mazzuto acted as an entrepreneur, investor and private
investment consultant and advisor based in New York County. During the period of the
scheme, Mazzuto was the Chief Executive Officer (“CEO”), President, Assistant
Secretary, and a member of the board of directors of IEAM. Additionally, for significant
periods he also acted as Chief Financial Officer (“CFO”) of IEAM. Mazzuto filed a
personal bankruptcy petition in the United States Bankruptcy Court for the Southern
District of New York in November 2002 and was discharged from bankruptcy on May
15, 2009 – a period encompassing the entire period of the scheme, from which he
personally obtained in excess of $15 million.
• James W. Margulies. Defendant James Margulies is a Cleveland, Ohio-based attorney
with a background in business and securities who, during the period of the scheme, was
a member of the law firm of Margulies and Levinson, LLP. He also formed and utilized
a business entity called the Margulies Law Group. During the period of the scheme,
Margulies held various positions with IEAM, including outside counsel, CFO, General
Counsel, CEO, and member of the board of directors. Margulies obtained in excess of
$6 million from the scheme.
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THE SCHEME
Origins
In 2002 John Mazzuto acquired a controlling interest in a private New Jersey-based
company called EMC Packaging, Inc. (“EMC”). He then turned his attention to merging EMC
into a publicly listed shell corporation. In July 2004, Mazzuto, with others, accomplished his
goal by gaining control over a dormant public shell corporation called Advanced Bio/Chem, Inc.
(“AVBC”) – a Texas-based company with no operations. At the time, AVBC’s stock traded on
the Pink Sheets (an over-the-counter market for penny stocks). In October 2004 Mazzuto used
AVBC to acquire EMC.
Shortly after the transaction, AVBC changed its name to Industrial Enterprises of
America, Inc. EMC was IEAM’s sole operating business at that time. Later, in 2005 and 2006,
IEAM acquired other subsidiaries, including Unifide Industries, LLC and Pitt Penn Oil
Company.
Registration of IEAM stock with the U.S. Securities and Exchange Commission
Once in control of a publicly listed corporation with an operational business, the
schemers filed a Form S-8 registration (“S-8”) with the United States Securities and Exchange
Commission (“SEC”) on January 24, 2005, along with an employee stock option plan (the
“Plan”), registering 15 million shares of IEAM stock. An S-8 is a public filing by which
companies register shares with the SEC to be issued exclusively for compensatory or incentive
purposes pursuant to an employee benefits plan. Issuing or selling shares to the public for
capital-raising purposes requires separate filings and registrations.
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The IEAM Plan authorized the IEAM board of directors to issue securities to: (1)
employees; (2) outside members of the board of directors; and (3) consultants. Further, the Plan
authorized the board to issue three types of securities: (1) stock options; (2) restricted shares;
and (3) stock appreciation rights (SARs). Defendant James Margulies, whom Mazzuto had met
and hired in 2004 in the course of seeking to acquire a public shell, was responsible for filing
the IEAM S-8 registration and Plan.
Stock issuances
Between January 24, 2005 and March 31, 2008, Mazzuto and Margulies invoked the S-8
and Plan, but subverted them, to issue millions of shares of IEAM stock worth tens of millions
of dollars to friends, family members, alma maters, and to shell companies, entities and
accounts the schemers controlled, instead of to employees, outside members of the board of
directors or bona fide consultants. A significant number of the shares were issued illicitly for
capital-raising purposes and as gifts, instead of for compensatory or incentive purposes, as
required by the Plan.
The share recipients sold the stock immediately, converting the shares to cash. The
recipients then either kept the money for their own benefit or wired it directly back to IEAM,
where it was booked fraudulently as, among other things, revenue, or to various entities or
accounts controlled by the schemers.
The single largest recipient of IEAM shares was an attorney trust account opened and
controlled by James Margulies, which received more than 3.5 million shares of stock, which
defendant Margulies sold in the open market for approximately $17.7 million, directing more
than $13 million back to IEAM, and the remainder to accounts in the name of or controlled by
the schemers.
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Reverse stock split
In June 2006 the schemers implemented a reverse 10-for-1 stock split, whereby every
ten shares of outstanding IEAM stock were converted to one share, and the value of every share
outstanding was increased ten-fold. This had the immediate effect of increasing by a factor of
ten the value of the shares the schemers issued pursuant to the S-8 registration and Plan.
The “pump”
To fraudulently inflate the market value of IEAM stock, and to solicit and encourage
public investment in IEAM, Mazzuto and other schemers also routinely made false or
misleading representations about the company in a series of press releases, investor meetings
and calls, and investor conferences held in New York County and elsewhere, and in various
public filings, including false and misleading information about IEAM’s financial condition,
capital structure, earnings guidance and projections, and about the number of shares
outstanding.
The cover-up
In order to conceal the unauthorized stock issuances, and the flow of proceeds back into
the corporation, the schemers engaged in a variety of fraudulent practices, including:
• Describing share recipients who performed little or no bona fide services for IEAM as
“consultants” to the company’s auditors, and creating false consulting agreements to
convey the pretense that these were legitimate recipients of shares.
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• Arranging bogus private stock transactions, whereby the schemers solicited professional
investors to purchase stock directly from purported IEAM shareholders, when in fact
there were no actual sellers in these transactions. Rather, while the schemers instructed
the investors to wire money into a Margulies-controlled attorney trust account to be
directed to the ostensible seller, defendant Margulies instead wired the funds directly to
an IEAM account (whereupon, the true origin of the money was concealed). And
instead of delivering to the buyer pre-existing shares, Mazzuto and Margulies instructed
the transfer agent to issue new shares of IEAM stock to buyers pursuant to the S-8
registration and Plan.
• Disguising on the books and records of IEAM the flow of money back into the company
from the sale of S-8-issued shares as: (1) loans from various entities; (2) revenue from
the exercise of stock options; (3) reimbursement of legal and other professional fees;
and (4) revenue from “bulk sales” of inventory.
• Providing falsified books and records to outside auditors that contained false
information about the issuance of IEAM shares under the S-8 registration and Plan, and
false information about the source of money flowing back into the company from the
sale of such shares.
• Making misrepresentations in public filings with the SEC, or omitting material
information from public filings.
FOURTH COUNT:
defendants of the crime of a violation of General Business Law §352-c(5) (“MARTIN ACT”),
committed as follows:
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about July 1, 2004 to in or about 2008, intentionally engaged in a scheme constituting an
ongoing course of conduct with intent to defraud ten and more persons and to obtain property
from ten and more persons by false and fraudulent pretenses, representations and promises and
so obtained property from one and more of such persons while engaged in, inducing and
promoting the issuance, distribution, exchange, sale, negotiation and purchase of securities of
Industrial Enterprises of America, Inc.
FIFTH COUNT:
defendants of the crime of a violation of General Business Law §352-c(6) (“MARTIN ACT”),
committed as follows:
about July 1, 2004 to in or about 2008, intentionally engaged in fraud, deception, concealment,
suppression, false pretense and fictitious and pretended purchase and sale, and with intent to
deceive and defraud, made material false representations and statements, while engaged in
inducing and promoting the issuance, distribution, exchange, sale, negotiation and purchase
within and from New York of a security, and thereby wrongfully obtained property with a value
in excess of $250.00.
SIXTH COUNT:
defendants of the crime of CONSPIRACY IN THE FOURTH DEGREE, in violation of
Penal Law §105.10(1), committed as follows:
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about July 1, 2004 to in or about 2008, with intent that conduct constituting the felonies of
Grand Larceny in the First and Second Degree and Criminal Possession of Stolen Property in
the First and Second Degree be performed, did agree with one and more persons to engage in
and cause the performance of such conduct in that defendants and others agreed to issue, report
and record the issuance of shares of stock illicitly, direct the flows of proceeds from the sale of
such shares of stock, falsify documents and use nominees and nominee accounts to disguise the
flow of proceeds and avoid detection, and enlist and corrupt others to gain assistance, and
thereby sought to steal and possess millions of dollars in fraudulent stock proceeds.
The goal of the conspiracy was to steal and possess property in the form of shares of
IEAM stock and money generated from the sale thereof.
To effectuate their goal, the conspirators agreed to issue millions of shares of stock to
family members, close associates, and to shell companies and entities they controlled, and to
disguise the distribution of the proceeds back to the company and to themselves by creating
numerous false documents and records and making numerous false and misleading statements to
regulators and to the investing public. In so doing, the conspirators sought to defraud stock
transfer agents, regulators, auditors, investors and IEAM shareholders by fraudulently
conveying shares of stock and disguising the distribution of the proceeds from the sale of stock.
To further their plan, the conspirators agreed to engage in conduct designed to inflate the
value of IEAM stock and to influence investors and shareholders to purchase shares of IEAM
stock. The conspirators agreed to make false and misleading public filings and to issue false
and misleading press releases. They also agreed to make false and misleading presentations to
investors and shareholders at investor conferences, investor meetings, and on investor calls.
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The ultimate goal of these conspirators’ efforts was to issue, inflate and convert IEAM stock
into as much money as possible, using complicit nominees and nominee accounts for channeling the
stolen proceeds back into the company and into accounts they controlled.
OVERT ACTS
In the course of and in furtherance of the conspiracy, the conspirators committed and
caused to be committed the following overt acts:
1. On or about November 12, 2004, defendant John Mazzuto caused to be created a
consulting agreement between IEAM and Regal Partners, LLC, an entity Mazzuto controlled.
2. On or about January 6, 2005, defendant John Mazzuto caused to be created and
signed a consulting agreement between IEAM and Regal Partners, LLC, an entity Mazzuto
controlled.
3. On or about January 24, 2005, defendants John Mazzuto and James Margulies
filed with the SEC a Form S-8 Registration Statement and Advanced Bio/Chem, Inc. 2004
Stock Option Plan (“Plan”), registering 15 million shares of stock to be issued pursuant to the
terms of the registration and Plan.
4. On or about January 24, 2005, John Mazzuto signed and caused to be sent a letter
to the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of
500,000 shares to Regal Partners, LLC, an entity controlled by John Mazzuto.
450,000 shares to Co-Conspirator #1, a friend and cohort of defendant James Margulies.
750,000 shares to Co-Conspirator #2, John Mazzuto’s girlfriend.
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7. On or about January 25, 2005, John Mazzuto signed and caused to be sent three
letters to the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of
425,000 shares to members of his family.
500,000 shares to an investment entity located in Ohio and controlled by Co-Conspirator #3, a
business associate of John Mazzuto’s.
150,000 shares to Co-Conspirator #4, John Mazzuto’s attorney.
150,000 shares to his university alma mater.
150,000 shares to his high school alma mater.
500,000 shares to Co-Conspirator #5, a business associate of John Mazzuto’s.
500,000 shares to Co-Conspirator #6, a business associate of John Mazzuto’s.
14. On or about February 16, 2005, defendant John Mazzuto caused to be created
and signed a consulting agreement between IEAM and an investment entity located in Texas
and controlled by Co-Conspirator #7, a business associate of John Mazzuto’s.
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15. On or about April 13, 2005, John Mazzuto signed and caused to be sent a letter to
the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of 1,000,000
shares to an entity controlled by Co-Conspirator #8, IEAM’s investor relations representative.
16. During the period from November 1, 2005 to October 30, 2007, James Margulies
wired approximately $2.6 million of IEAM stock proceeds from an attorney trust account he
controlled to a checking account he controlled with his wife.
17. On or about January 31, 2006, John Mazzuto and James Margulies caused to be
created falsified minutes of the meeting of the board of directors of IEAM.
18. On or about February 28, 2006, John Mazzuto caused to be created and signed a
consulting agreement between IEAM and Co-Conspirator #9, a stock promoter who arranged
sham private stock sales for IEAM.
19. On or about May 26, 2006, John Mazzuto signed and caused to be sent a letter to
the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of 400,000
shares to M4 Capital, LLC, an entity controlled by John Mazzuto.
20. On or about May 26, 2006, James Margulies signed and caused to be sent a letter
600,000 shares to Co-Conspirator #1, a friend and cohort of defendant James Margulies.
21. On or about August 1, 2006, John Mazzuto and James Margulies caused to be
created and signed a consulting agreement between IEAM and Sapphire Associates, LLC, an
entity Mazzuto controlled.
22. On or about August 25, 2006, James Margulies wired $169,800 of IEAM share
proceeds from an attorney trust account he controlled to a title company as part of a down
payment on a condominium for John Mazzuto located in Florida.
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23. On or about September 7, 2006, John Mazzuto appeared and made a presentation
on behalf of IEAM at an investor conference in New York County, in which he made
representations about the company, including projected earnings guidance for IEAM and the
number of shares of IEAM stock outstanding.
24. On or about September 11, 2006, James Margulies wired $2.7 million of IEAM
share proceeds from an attorney trust account he controlled to an account in the name of Co-
Conspirator #4, John Mazzuto’s attorney, for the purchase of a home in Southampton, New
York for John Mazzuto.
25. During the period from October 1, 2006 to May 30, 2007, James Margulies wired
approximately $1 million of IEAM share proceeds from an attorney trust account he controlled
to an account controlled by John Mazzuto.
26. On or about October 2, 2006, John Mazzuto caused to be created and signed a
consulting agreement between IEAM and an individual who had participated in a private stock
transaction arranged by Mazzuto.
27. On or about October 4, 2006, John Mazzuto and James Margulies caused to be
created a falsified incentive stock option agreement between IEAM and Co-Conspirator #1, a
friend and cohort of defendant James Margulies.
created a falsified promissory note between IEAM and Margulies and Levinson, LLP.
created a falsified incentive stock option agreement between IEAM and Co-Conspirator #10, an
accountant located in Ohio.
30. On or about November 3, 2006, John Mazzuto caused to be created and signed a
consulting agreement between IEAM and an entity controlled by Co-Conspirator #3, a business
associate of John Mazzuto’s.
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31. On or about November 17, 2006, John Mazzuto caused to be created a falsified
promissory note between IEAM and Sapphire Associates, LLC, an entity he controlled.
32. On or about December 27, 2006, John Mazzuto and James Margulies caused to
be created a falsified incentive stock option agreement between IEAM and Co-Conspirator #1, a
friend and cohort of defendant James Margulies.
33. On or about December 27, 2006, John Mazzuto signed and caused to be sent a
letter to the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of
407,850 shares to an attorney trust account controlled by James Margulies.
34. On or about December 31, 2006, John Mazzuto caused to be created two falsified
purchase orders.
35. During the period from December 29, 2006 to September 30, 2007 James
Margulies wired approximately $17.8 million of IEAM share proceeds from an attorney trust
account he controlled to an account in the name of IEAM.
36. On or about January 1, 2007, John Mazzuto caused to be created a falsified
promissory note between IEAM and an entity controlled by Co-Conspirator #1, a friend and
cohort of defendant James Margulies.
37. On or about January 5, 2007, John Mazzuto and James Margulies caused to be
created falsified minutes of the meeting of the board of directors of IEAM
38. On February 16, 2007, IEAM issued a press release announcing results for the
fiscal quarter ending December 31, 2006, which included false and misleading revenue figures.
39. On or about February 13, 2007, John Mazzuto and James Margulies caused to be
created three falsified sales summaries for IEAM’s subsidiaries.
40. On or about February 28, 2007, John Mazzuto caused to be created two falsified
purchase orders.
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41. On or about March 21, 2007, James Margulies signed and caused to be sent a
99,100 shares to an attorney trust account he controlled.
42. On or about March 27, 2007, James Margulies wired approximately $900,000 of
IEAM share proceeds from an attorney trust account he controlled to a title company for the
purchase of a house for John Mazzuto located in Texas.
43. On or about March 29, 2007, James Margulies signed and caused to be sent a
100,000 shares to an attorney trust account he controlled.
44. On or about March 31, 2007, John Mazzuto caused to be created a falsified
purchase order.
45. On or about April 9, 2007, James Margulies signed and caused to be sent a letter
to the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of 40,000
shares to Co-Conspirator #9, a stock promoter who arranged sham private stock sales for IEAM.
46. On or about April 23, 2007, John Mazzuto signed and caused to be sent a letter to
the IEAM stock transfer agent invoking the S-8 and Plan and directing the issuance of 100,000
shares to the wife of James Margulies.
47. On or about April 24, 2007, John Mazzuto and James Margulies caused to be
created a falsified spreadsheet detailing bank account activity of IEAM.
48. On or about April 26, 2007, James Margulies signed and caused to be sent a
800,000 shares to an entity controlled by Co-Conspirator #1, a friend and cohort of defendant
James Margulies.
49. On or about May 14, 2007, John Mazzuto and James Margulies caused to be
created falsified consolidating workbooks for IEAM.
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50. On or about May 22, 2007, IEAM issued a press release announcing results for
the fiscal quarter ending March 31, 2006, which included false and misleading revenue figures.
51. On or about July 9, 2007, John Mazzuto and James Margulies caused to be
created falsified minutes of the meeting of the board of directors of IEAM
52. On or about July 12, 2007, IEAM issued a press release which included false and
misleading information about earnings projections and the number of shares of IEAM stock
outstanding.
53. On or about July 24, 2007, John Mazzuto and James Margulies caused to be
created falsified minutes of the meeting of the board of directors of IEAM.
54. On or about August 6, 2007, John Mazzuto caused to be created falsified minutes
of the meeting of the board of directors of IEAM.
55. On or about August 20, 2007, John Mazzuto caused to be created falsified
minutes of the meeting of the board of directors of IEAM.
56. On or about August 29, 2007, James Margulies wired approximately $1.85
million in S-8 share proceeds from an attorney trust account he controlled to a title company for
the purchase of a home for John Mazzuto located in Florida.
57. On or about September 6, 2007, John Mazzuto led an investor call in which he
made false and misleading representations about the number of IEAM shares outstanding and
earnings guidance for the company.
58. On or about September 7, 2007, John Mazzuto caused to be created falsified
minutes of the meeting of the board of directors of IEAM.
59. On or about September 27, 2007, IEAM issued a press release which included
false and misleading information about annualized savings figures for the company.
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FALSIFIED BOARD OF DIRECTORS MEETING MINUTES
SEVENTH COUNT:
defendants of the crime of FALSIFYING BUSINESS RECORDS IN THE FIRST
DEGREE, in violation of Penal Law §175.10, committed as follows:
The defendant, in the County of New York and elsewhere, on or about January 31, 2006,
with intent to defraud and to commit another crime and to aid and conceal the commission
thereof, made and caused to be made a false entry into the business records of an enterprise,
IEAM, to wit, minutes of the meeting of the board of directors of IEAM.
EIGHTH COUNT:
The defendants, in the County of New York and elsewhere, on or about January 5, 2007,
NINTH COUNT:
defendant JOHN MAZZUTO of the crime of FALSIFYING BUSINESS RECORDS IN THE
FIRST DEGREE, in violation of Penal Law §175.10, committed as follows:
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The defendant JOHN MAZZUTO, in the County of New York and elsewhere, on or
about February 5, 2007, with intent to defraud and to commit another crime and to aid and
conceal the commission thereof, made and caused to be made a false entry into the business
records of an enterprise, IEAM, to wit, minutes of the meeting of the board of directors of
IEAM.
TENTH COUNT:
The defendants, in the County of New York and elsewhere, on or about February 21,
2007, with intent to defraud and to commit another crime and to aid and conceal the commission
ELEVENTH COUNT:
The defendants, in the County of New York and elsewhere, on or about March 15, 2007,
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TWELFTH COUNT:
The defendants, in the County of New York and elsewhere, on or about June 28, 2007,
THIRTEENTH COUNT:
FOURTEENTH COUNT:
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The defendants, in the County of New York and elsewhere, on or about July 9, 2007,
FIFTEENTH COUNT:
SIXTEENTH COUNT:
20
SEVENTEENTH COUNT:
about August 6, 2007, with intent to defraud and to commit another crime and to aid and
IEAM.
EIGHTEENTH COUNT:
about August 20, 2007, with intent to defraud and to commit another crime and to aid and
IEAM.
NINETEENTH COUNT:
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about September 7, 2007, with intent to defraud and to commit another crime and to aid and
IEAM.
FALSIFIED CONSULTING AGREEMENTS
TWENTIETH COUNT:
about November 11, 2005, with intent to defraud and to commit another crime and to aid and
records of an enterprise, IEAM, to wit, a consulting agreement between IEAM and an
investment advisor located in Texas.
TWENTY-FIRST COUNT:
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records of an enterprise, IEAM, to wit, a consulting agreement between IEAM and a stock
promoter who arranged sham private stock sales for IEAM.
TWENTY-SECOND COUNT:
The defendants, in the County of New York and elsewhere, on or about August 1, 2006,
IEAM, to wit, a consulting agreement between IEAM and Sapphire Associates, LLC.
TWENTY-THIRD COUNT:
about October 2, 2006, with intent to defraud and to commit another crime and to aid and
records of an enterprise, IEAM, to wit, a consulting agreement between IEAM and Sapphire
Associates, LLC.
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TWENTY-FOURTH COUNT:
records of an enterprise, IEAM, to wit, a consulting agreement between IEAM and an individual
who participated in a private stock transaction arranged by Mazzuto.
TWENTY-FIFTH COUNT:
investment entity located in Ohio.
TWENTY-SIXTH COUNT:
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about December 18, 2006, with intent to defraud and to commit another crime and to aid and
accountant located in Texas.
FALSIFIED IEAM BOOKS AND RECORDS
TWENTY-SEVENTH COUNT:
IEAM, to wit, a sales summary.
TWENTY-EIGHTH COUNT:
25
TWENTY-NINTH COUNT:
THIRTIETH COUNT:
IEAM, to wit, cash flow and balance sheet worksheets.
THIRTY-FIRST COUNT:
26
IEAM, to wit, schedules of options and warrants.
THIRTY-SECOND COUNT:
The defendants, in the County of New York and elsewhere, on or about April 24, 2007,
IEAM, to wit, a spreadsheet detailing bank account activity of IEAM.
THIRTY-THIRD COUNT:
The defendants, in the County of New York and elsewhere, on or about May 14, 2007,
IEAM, to wit, consolidating workbooks.
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THIRTY-FOURTH COUNT:
The defendants, in the County of New York and elsewhere, on or about May 14, 2007,
IEAM, to wit, consolidating workbooks.
THIRTY-FIFTH COUNT:
IEAM, to wit, a quarterly report.
THIRTY-SIXTH COUNT:
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IEAM, to wit, a quarterly cash report.
THIRTY-SEVENTH COUNT:
IEAM, to wit, a quarterly cash report.
FALSIFIED DEBT INSTRUMENTS
THIRTY-EIGHTH COUNT:
The defendants, in the County of New York and elsewhere, on or about October 5, 2006,
IEAM, to wit, a promissory note between IEAM and Margulies and Levinson, LLP.
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THIRTY-NINTH COUNT:
records of an enterprise, IEAM, to wit, a promissory note between IEAM and Sapphire
Associates, LLC.
FORTIETH COUNT:
records of an enterprise, IEAM, to wit, a promissory note between IEAM and Sapphire
Associates, LLC.
FORTY-FIRST COUNT:
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about January 1, 2007, with intent to defraud and to commit another crime and to aid and
records of an enterprise, IEAM, to wit, a revolving credit grid note between IEAM and an entity
located in Ohio controlled by a friend and cohort of James Margulies.
FALSIFIED INCENTIVE STOCK OPTION AGREEMENTS AND LETTERS
FORTY-SECOND COUNT:
The defendants, in the County of New York and elsewhere, on or about October 4, 2006,
IEAM, to wit, an incentive stock option agreement between IEAM and a friend and cohort of
James Margulies.
FORTY-THIRD COUNT:
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The defendants, in the County of New York and elsewhere, on or about November 1,
IEAM, to wit, an option exercise letter.
FORTY-FOURTH COUNT:
The defendants, in the County of New York and elsewhere, on or about October 20,
IEAM, to wit, an incentive stock option agreement between IEAM and an account located in
Ohio.
FORTY-FIFTH COUNT:
defendants, of the crime of FALSIFYING BUSINESS RECORDS IN THE FIRST
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FORTY-SIXTH COUNT:
The defendants, in the County of New York and elsewhere, on or about December 27,
IEAM, to wit, an incentive stock option agreement between IEAM and an account located in
Ohio.
FORTY-SEVENTH COUNT:
FORTY-EIGHTH COUNT:
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IEAM, to wit, an incentive stock option agreement between IEAM and an attorney located in
Ohio.
FORTY-NINTH COUNT:
FIFTIETH COUNT:
IEAM, to wit, an incentive stock option agreement between IEAM and a friend and cohort of
James Margulies.
34
FIFTY-FIRST COUNT:
FALSIFIED PURCHASE ORDERS
FIFTY-SECOND COUNT:
records of an enterprise, IEAM, to wit, a purchase order.
FIFTY-THIRD COUNT:
35
FIFTY-FOURTH COUNT:
FIFTY-FIFTH COUNT:
36
FIFTY-SIXTH COUNT:
about March 31, 2007, with intent to defraud and to commit another crime and to aid and
FALSIFIED STOCK PURCHASE AGREEMENT
FIFTY-SEVENTH COUNT:
The defendants, in the County of New York and elsewhere, on or about September 1,
IEAM, to wit, a stock purchase agreement.
CYRUS R. VANCE, JR.

District Attorney
37
GJ # 8
Filed: NA
No. No.
THE PEOPLE OF THE STATE OF NEW YORK
-against-
JOHN D. MAZZUTO and

JAMES W. MARGULIES,
Defendants.
INDICTMENT
GRAND LARCENY IN THE FIRST DEGREE, P.L. §155.42, 2 Cts. (both defendants)
VIOLATION OF G.B.L. §352-c(5) (both defendants)
VIOLATION OF G.B.L. §352-c(6) (both defendants)
SCHEME TO DEFRAUD IN THE FIRST DEGREE, P.L. §190.65(1)(b) (both defendants)
CONSPIRACY IN THE FOURTH DEGREE, P.L. §105.10(1) (both defendants)
FALSIFYING BUSINESS RECORDS IN THE FIRST DEGREE, P.L. §175.10 (defendant John Mazzuto, 51 cts.; defendant Margulies, 33 counts)
CYRUS R. VANCE, JR.

District Attorney
ADA Garrett Lynch Foreperson

ADA Harold Wilson
Major Economic Crimes Bureau
A True Bill
38

Indictment of John Mazzuto & James Margulies Related To Industrial Enterprises of America (IEAM) Massive Stock Fraud

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Indictment of John Mazzuto & James Margulies Related To Industrial Enterprises of America (IEAM) Massive Stock Fraud

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SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK

THE PEOPLE OF THE STATE OF NEW YORK

-against- Indictment No. 2503/2010

JOHN D. MAZZUTO and

Penal Law §155.42, committed as follows:

defendants of the crime of GRAND LARCENY IN THE FIRST DEGREE, in violation of

Penal Law §155.42, committed as follows:

defendants of the crime of SCHEME TO DEFRAUD IN THE FIRST DEGREE, in violation

of Penal Law §190.65(1)(b), committed as follows:

distributed automotive after-market products (e.g., antifreeze, windshield cleaner and

Board (“OTCBB”) and the NASDAQ Stock Market (“NASDAQ”).

personally obtained in excess of $15 million.

• James W. Margulies. Defendant James Margulies is a Cleveland, Ohio-based attorney

$6 million from the scheme.

In 2002 John Mazzuto acquired a controlling interest in a private New Jersey-based

AVBC to acquire EMC.

Once in control of a publicly listed corporation with an operational business, the

capital-raising purposes requires separate filings and registrations.

the IEAM S-8 registration and Plan.

capital-raising purposes and as gifts, instead of for compensatory or incentive purposes, as

required by the Plan.

accounts controlled by the schemers.

the corporation, the schemers engaged in a variety of fraudulent practices, including:

“consultants” to the company’s auditors, and creating false consulting agreements to

convey the pretense that these were legitimate recipients of shares.

the investors to wire money into a Margulies-controlled attorney trust account to be

registration and Plan.

and (4) revenue from “bulk sales” of inventory.

sale of such shares.

• Making misrepresentations in public filings with the SEC, or omitting material

information from public filings.

about July 1, 2004 to in or about 2008, intentionally engaged in a scheme constituting an

Industrial Enterprises of America, Inc.

defendants of the crime of CONSPIRACY IN THE FOURTH DEGREE, in violation of

Penal Law §105.10(1), committed as follows:

IEAM stock and money generated from the sale thereof.

transfer agents, regulators, auditors, investors and IEAM shareholders by fraudulently

caused to be committed the following overt acts:

1. On or about November 12, 2004, defendant John Mazzuto caused to be created a

2. On or about January 6, 2005, defendant John Mazzuto caused to be created and

terms of the registration and Plan.

500,000 shares to Regal Partners, LLC, an entity controlled by John Mazzuto.

750,000 shares to Co-Conspirator #2, John Mazzuto’s girlfriend.

425,000 shares to members of his family.

business associate of John Mazzuto’s.

150,000 shares to Co-Conspirator #4, John Mazzuto’s attorney.

150,000 shares to his university alma mater.

150,000 shares to his high school alma mater.

500,000 shares to Co-Conspirator #5, a business associate of John Mazzuto’s.

500,000 shares to Co-Conspirator #6, a business associate of John Mazzuto’s.

and controlled by Co-Conspirator #7, a business associate of John Mazzuto’s.

shares to an entity controlled by Co-Conspirator #8, IEAM’s investor relations representative.

controlled to a checking account he controlled with his wife.

created falsified minutes of the meeting of the board of directors of IEAM.

sham private stock sales for IEAM.

shares to M4 Capital, LLC, an entity controlled by John Mazzuto.

entity Mazzuto controlled.

payment on a condominium for John Mazzuto located in Florida.

on behalf of IEAM at an investor conference in New York County, in which he made

number of shares of IEAM stock outstanding.

York for John Mazzuto.

to an account controlled by John Mazzuto.